Tough spot

NAFTA ne­go­ti­a­tions could mark end of era for Mex­i­can ex­ports

Pres­i­dent Don­ald Trump’s push to rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment is putting Mex­ico in a tough spot, threat­en­ing the sys­tem that has helped turn the coun­try into a top ex­porter through low wages, lax reg­u­la­tions and prox­im­ity to the United States.

With talks set to start on Aug. 16, the Trump ad­min­is­tra­tion is tar­get­ing the mas­sive U.S. trade deficit with its south­ern neigh­bour and the weakly en­forced labour, en­vi­ron­men­tal and man­u­fac­tur­ing rules that for 23 years have drawn Amer­i­can as­sem­bly plants to Mex­ico and launched a flood of tele­vi­sions, cars and ap­pli­ances across the bor­der.

“Mex­ico was rest­ing on its mer­its and has been in a com­fort zone, and now we have to leave it,” Econ­omy Min­is­ter Ilde­fonso Gua­jardo told a busi­ness group re­cently. “The alarm clock has rung for us to wake up.”

A key draw for for­eign as­sem­bly plants and in­vest­ment has been Mex­ico’s low wages. While av­er­age man­u­fac­tur­ing wages in China had risen to $3.60 per hour by 2016, Mex­ico’s had shrunk to $2.10 - a level some econ­o­mists say is ar­ti­fi­cially low. With many work­ers un­able to af­ford the ve­hi­cles Mex­ico pro­duces, the coun­try ex­ports about three times as many cars as are pur­chased do­mes­ti­cally, most to the United States.

“It is a very se­ri­ous prob­lem,” Alex Co­var­ru­bias, a labour pro­fes­sor at Mex­ico’s Sonora Col­lege, said of the coun­try’s wage pol­icy. “Al­most all the (labour) con­tracts that are signed in Mex­ico are un­law­ful, which means that they are com­pany con­tracts, which the work­ers aren’t aware of.”

The Trump ad­min­is­tra­tion is press­ing to bring labour and en­vi­ron­men­tal reg­u­la­tions orig­i­nally con­tained in weakly en­forced “side­bar” agree­ments - into the main body of NAFTA’s text, and to re­quire that Mex­ico’s gov­ern­ment en­sures the “ef­fec­tive recog­ni­tion of the right to col­lec­tive bar­gain­ing.”

Tight­en­ing Mex­ico’s labour laws and strength­en­ing union­iza­tion could push wages up, or at least stem the flight of jobs to Mex­ico, ex­perts say.

Gua­jardo said Mex­ico is will­ing to ne­go­ti­ate labour and en­vi­ron­men­tal is­sues as part of the talks to be held in Washington. “I think it would be progress, to guar­an­tee that the ben­e­fits of the agree­ment are shared among all.”

Gua­jardo ap­peared to be sim­i­larly flex­i­ble about mak­ing “fine ad­just­ments” to the rules-of-ori­gin in man­u­fac­tur­ing, which dic­tate how much re­gional con­tent would be re­quired to con­sider a prod­uct “made in North Amer­ica.” Crit­ics have ac­cused Mex­ico of im­port­ing a lot of Chi­nese or Euro­pean com­po­nents, as­sem­bling them and la­belling them made in North Amer­ica.

But Gua­jardo is less con­vinced by what he calls the Trump ad­min­is­tra­tion’s “ex­treme pre­oc­cu­pa­tion” with re­duc­ing trade deficits - one of the is­sues that make Mex­i­can of­fi­cials bris­tle.

“Since NAFTA was im­ple­mented in 1994, the U.S. bi­lat­eral goods trade bal­ance with Mex­ico has gone from a $1.3 bil­lion sur­plus to a $64 bil­lion deficit in 2016,” the U.S. Trade Rep­re­sen­ta­tive’s Of­fice said in un­veil­ing its plans for rene­go­ti­at­ing the ac­cord. “The ne­go­ti­at­ing ob­jec­tives also in­clude adding a dig­i­tal econ­omy chap­ter and in­cor­po­rat­ing and strength­en­ing labour and en­vi­ron­ment obli­ga­tions that are cur­rently in NAFTA side agree­ments.”

AP PHOTO

In this March 23 photo, work­ers in­spect and pack LG flat screens at an as­sem­bly plant in Reynosa, Mex­ico. The Trump ad­min­is­tra­tion is press­ing to bring labour and en­vi­ron­men­tal reg­u­la­tions into the main body of the North Amer­i­can Free Trade Agree­ment text in the up­com­ing rene­go­ti­a­tion of the three-way trade pact set for Aug. 16, in Washington, D.C.